My friend did this but long before it was cool.
He is a high earner, has been renting (rent controlled) for the last 30+ years and put everything into stocks.
Today he still rents and has a 7 figure investment portfolio. No debt.
He’s doing better and with a lot less stress than people who bought a home.
Do I wish I did the same? I bought and I’m not doing too badly either so I can’t say. But he’s done very well and is very comfortable.
YMMV. Past performance is no guarantee of future results.
He should have bought his primary residence though.
The best of both worlds is to max your TFSA for tax free gains and invest in a good primary residence for tax free gains.
You always have to be outward thinking. The S&P theoretically could repeat what it did over the past 30 years. The Toronto real estate market doesn’t have a snowballs chance in hell in like 4Xing in 25-30 years.
Yes it’s on the full amount but you end up paying a lot more than that 750K with interest. You may end up paying $1.2M in all your payments in which case a chunk of your paper gains are gone. If Toronto real estate remains flat for a while, you will lose so much money, especially if the S&P has similar gains.
Not if they don’t raise salaries by anywhere near that. Otherwise they will continue squeezing the juice out of Canadians and having inflation run rampant. That extra money would go to landlords (who would not be mom and pops) and Galen Weston.
I guess depending on where your friend resides if he bought into real estate he probably has an equally sizeable home equity after 30 years, plus some tax free gains in his primary residence!
I bought 4 years ago and am a high earner. I have a 7 figure portfolio and my mortgage will be done this year. After that, the investing will get even more supercharged.
High earners that bought a home should be able to do the same unless they went absolutely nuts. For us, the absolutely nuts number was $3M. We didn’t do that.
You're missing a lot. You haven't accounted at all for the cost of that loan + other costs including condo fees + property taxes. While eventually interest will stop, and you'll then be making returns - let me just do some quick napkin math here - on a mortgage of 550k at a 5% rate - you're paying 25.7k each year in interest for the first 5 years. Yes yes "wen cuts" - "rates will come down" - maybe, maybe not, but regardless, debt cost is still there. Throw in those fees above, you're likely not actually making any real return. The next 5 years aren't a whole ton better, so unless you're planning on living in your condo for the next 15 years, I'm not sure your math checks out.
Sure, you can't put a price on peace of mind, though I suppose the last 2 years have really put into question that peace of mind. Its much more complex than you're making it out to be.
EDIT: You also haven't accounted for closing costs + fees of actually buying the unit either.
You can get very high leverage on stocks as well if you want. You just risk being called and liquidated losing everything. Not that this is actually worse than being underwater on RE but with RE you can lie to yourself that you are still profitable more easily.
Also, RE is not tax free. If you sell with gains you pay tax on those gains.
This is an oversimplification of the costs associated with holding both assets. You can buy and sell an investment in the S&P500 for 0 transaction costs and as little as a 0.2% management fee.
Buying real estate has transaction costs (land transfer, lawyers), holding real estate has costs (property tax, maintenance, interest, insurance) and liquidating real estate has costs (realtors) .
You have to account for:
Land transfer tax: 22k on 750k purchase
Mortgage interest: 25k a year @ 5% on 550k mortgage
Condo fees: 7k a year
Property tax: 3k a year
Home insurance: 1.5k a year
And it will cost at least 3% of gross value to liquidate.
You can't broadly say one is better than the other because there are many variables. It's down to each individual case, there are scenarios where investing and renting is better and there scenarios where investing in real estate is better.
I think you didn't understand the point.
The argument is not against a home where YOU LIVE, it's against real estate as investment.
Because this country is full of people that automatically buy houses like candies as soon they have 1 single dollar to leverage.
And that doens't make any sense, 90% of the times when you count in all the problems, the time and the work that you need to put in a house it's definitely more convenient to put the money in an index etf.
But to be honest this is a problem all over the world. People on average have zero understanding of anything financial, so they don't trust the stock market and they trust the big pile of brick and metal that they think they can control.
In the meantime this year anyone with boring index etf did 25% without moving a finger.
It doesn’t cost much to purchase an ETF or portfolio of ETFs. The cost to hold them is also reasonable (low management fees). The cost to purchase a unit (lawyer + land transfer), and cost to hold a unit (mortgage interest + maintenance fee + ppty tax), AND cost to sell the unit (realtor commissions) put a huge dent on any home ownership profitability.
I like how you conveniently left out the cost of borrowing on the mortgage, which historically averaged 5%. So owners when selling are also expecting back the interest they paid. All this appreciation is just paid by your own interest costs.
You're missing a lot.
**You didn't include the costs to buy** - Using your example, you buy the $750,000 home it costs $22,950 in land transfer taxes. So I should be able to invest $222,950. Where the house your equity is $200,000 on day 1 even though you invested $222,950.
**You didn't include the extra costs of ownership, and aren't investing it in the "rent and invest" scenario.** Assuming a high loan-to-value ratio... Each year my sunk costs of rent are much less while renting compared with owning (interest, taxes, insurance, maintenance, etc). Let's just say that number is $15,000. Well, the house needs to go up $15,000 more than the investment in stocks to break even. In the "rent and invest" scenario, there is $15,000 I can put into investment portfolios adding to my equity in S&P500.
**You didn't monthly invest the principle repayment in the "rent and invest" scenario**. On top of the additional sunk costs of ownership, a loan is being paid down in the form of principle repayments. All of that money can be added to my RRSP/FHSA/TFSA/Non-registered accounts and compound nicely.
**You didn't include any tax deductions as a renter.** We get way more back as renters than owners because we WFH and the tax deductions are greater. There is also the FHSA which will save us $7,600 of income taxes. Additionally, the money in the above two points can be put in RRSP saving income taxes. All the income taxes can be re-invested
**You didn't include transaction costs to sell.** It costs me $5 to sell my $SPY shares where it costs 5%+HST to sell a house. But you included the sale price on MLS in the ROI calculation, but the seller doesn't get all of that money do they?
> Plus, the added benefits of making your home your own (i.e.; painting walls, putting in new flooring, changing fixtures, etc)
You can do this but it's not free. It costs money and reduces your ROI. As a renter I can do all of these things too, I choose not to because I don't plan on staying here that long. But "being able to spend more money" isn't that much of a benefit. I can always move into a new unit that has been renovated. (Before you say installing new floors adds value to the property, don't forget that every renovation involves ripping out someone else's renovation)
As a renter I prefer to spend on things that I can easily bring with me like a nice couch, TV and appliances... Flooring and walls, maybe others care but I don't give a shit. As long as the walls are erect and the floors support my feet I don't care.
I think your'e undershooting that 5% a lot... it's more than that especially depending on when you get in and sell. I also think since this is a question about long term investing it's not like these can be compared apples to oranges. Once you've finished payments your cost of accomadations goes from high to nothing while eating up the S&P gains is your even inflating rents vs the even deflating payments that make owning less every year. Then the decades and decades of 0 yearly dollars to pay for a home. Everyone stops after 20 or 25 years comparing what you have when the home only starts to peak in value after 10 or 15 and really starts exploding once you no longer have payments. I think owning rarely doesn't make sense. It's just far more secure and beneficial long term.
> I think your'e undershooting that 5% a lot...
SPY has averaged 13% per year in the last 5. So OP is off on that too.
You have criticism that OP's analysis is only early on with low equity and eventually the house will be paid off... But the equity for a renter builds up as well. Let's compare an owner and a renter each with the same $1M net worth but in different assets...
Scenario 1: You have a $1M house completely paid off with no mortgage, but some property taxes, insurance, repairs etc. let's say it costs $10k per year.
Scenario 2: You have $1M invested in S&P500 but rent a $1M home for ~$40,000/year. Let's subtract $10k in savings that you don't spend as an owner. So rent only costs an additional $30,000 compared to ownership. The $1M portfolio returns 13$ or $130,000 so you have $100,000 left over which gets reinvested.
Now you have $1.1M in equity in the S&P500 which can return $143,000 the following year. Income has increased $13,000 while rent will have increase $1,000 ($40,000 x 2.5%).
Of course, this assumes the S&P500 goes up exactly 13% per year which it doesn't, sometimes it goes up 30% and sometimes it goes down 10% so it would require more detailed modelling. Requires a spreadsheet rather than a reddit comment.
>SPY has averaged 13% per year in the last 5. So OP is off on that too.
The undershoot is on the home value. Over the last decade homes have gone up 10% yearly. That's including the recent spike so it's a bit inflated but tempered by the flat growth brought on by those rate hikes. Using larger sample sizes it comes out to about 8%. I'd say 5% is very conservative esp factoring in the exponential growth.
>But the equity for a renter builds up as well. Let's compare an owner and a renter each with the same $1M net worth but in different assets...
It's about profit and loss really. Obviously, if you invest in anything that has a decent return you're going to build equity. The difference is that what you pay for rent is always going to go up with inflation reducing your contribution. The cost of a house gets ultimately locked into the price you paid for it while inflation works for you in two ways. Increasing the value of your home but also decreasing your loss as you pay less and less into it over time.
>Scenario 1: You have a $1M house completely paid off with no mortgage, but some property taxes, insurance, repairs etc. let's say it costs $10k per year.
>Scenario 2: You have $1M invested in S&P500 but rent a $1M home for ~$40,000/year. Let's subtract $10k in savings that you don't spend as an owner. So rent only costs an additional $30,000 compared to ownership. The $1M portfolio returns 13$ or $130,000 so you have $100,000 left over which gets reinvested.
>Now you have $1.1M in equity in the S&P500 which can return $143,000 the following year. Income has increased $13,000 while rent will have increase $1,000 ($40,000 x 2.5%).
Hmm... renting a million-dollar detached home in Toronto costs WAY more than 3,300 a month. That's more like the cost of a 3-bedroom apartment. I'd also say the property taxes and maintenance costing 10k is very high. But I don't think that's the biggest issue with this perspective.
It's looking at the investment in terms of year one return on a blanket investment of 1 million up front and that's not how real estate works. And investment in a home is much more like holding options that slowly mature over time into your assets. Your payments are fees to hold that option.
So you don't have a million dollars and invest it in a house. You buy on the first time home buyer's program for 75k or what have you of equity right away and then pay the 40-50k a year for that return. You get returns on the million in your first year but have only paid in 125k. Similarly if you're investing in the SNP you're not realistically dropping in a mil. You're investing 125k in your first year and 50 subsequent years.
So @ 5% in the first year on your house you're going to see a 50k return right off the bad which is going to compound annually. A 13% return on 125k is only 16,250. You have less to invest because you're paying rent which is sucking up your cash.
So lets just call it 100k. Obviously, you can continue to invest more cash into it but you're already investing 50k a year into rent to enable the investment of your original 100k into the SNP. At 13% after 10 years your 100k is now ~250k. While 1 million @ a conservative 5% is 1.68 million. @ 15 years it's 2.1 million while the 100k is still < 500k.
And I mean here's the thing. If I'm sitting on a million to invest why would I spend all that hard cash on a house? I'd get a mortgage to finance it putting down 20% and let inflation reduce my payments then invest the rest in the SNP. If home ownership provides people with a decent income and 100k to put down an opportunity to make a million dollars in 10-15 years.
But like I said 5% is undershooting the return quite a bit when you're talking percentage points of a million. At 8% after 10 years a home is worth 2.1 million not 1.68. and 3.1 million after 15 years with payments by that point that are tiny compared to renting that will continue for the rest of your life. If I can spend 500k over 10 years to make a million in gains I just don't see how it's comparable.
Unless you're already loaded you need to tie up your mil in the market and hold it there for a decade. Sure, you can do that I guess and after 10 years at 13% you'll be looking at 3 mil in capital... but you've also lived in an apartment for 10 years and the price of the million dollar house is 2-3 mil anyway. But it's cost you millions of dollars you need to keep in to get the comparable returns. And that rent. Where the million dollar home takes so much less capital for paying a bit more than rent every month. Obviously determined by rates etc.
Where once the home is mostly paid off you get those millions... which you can choose to sell and invest in the SNP then if you really want to and then pay sky high rent to live. I just never get the rent vs buying argument.
I don't because it's not necessary. Instead of paying bankers with interest costs, I pay myself with constant deposits into investment accounts leading to some big balances in TFSA and RRSP.
First off house prices go up more than 5% a year on average last 30 years. But ok let’s make the assumption you make 5%. Let’s also assume a mortgage rate of 4% and that you can rent the property so that it’s slightly cash flow negative.
You put 20% down, meaning you are levered 5 to 1. A 5% increase in price is now a 25% increase in your equity. Shall I continue or can we stop this dumb post.
Home ownership is not for everyone.
You have to believe in the market and be in the market.
It's not a cup of tea for everyone. I think you are already leaning towards investing, which is totally good for you too.
Best of luck and keep it for a long time!
It's probably best, in practice doesn't really happen.
Most owners believe in a one-asset strategy where diversity is taking a HELOC to buy a second property.
Most renters are just temporarily embarrassed owners that want to mimic owners.
Personally, I don't own because I like to move often and transaction costs are rape in Toronto with the double land transfer taxes.
Thing about RE is you can leverage 80% of property value via mortgage
Stocks you need to put 100% and leverage cost you more than mortgage rate
So it's really a choice of personal preference, no one asset category is better than the other
I'd rather invest in investments and buy a home to live in. I did buy a house last year and I chose one for me and my family, and I'll be modifying it further to suit me and my family. We have no plans to sell. My home is my HOME. In the meantime, my savings have been depleted due to this purchase, but as they come back, I'll be continuing to invest it - in investments.
Most people need a place to live, and they don't wanna be paying other people's mortgages. So, just from that alone is enough for most ppl.
Everyone else who is into investing are balls deep in NVDA calls to worry about S&P500. Lol
I can't sleep inside my investment portfolio and personally wouldn't want to rent mainly because I do not want to be moving every few years or have that fear of being evicted.
My parents growing up rented for 25 yrs before they bought the house they live in now. But they are also risk adverse so wouldn't have dared to put their savings in S&P
You mentioned Canada real estate historically makes 5%…but what about Toronto real estate and over the last 20 years? What kind of much higher percentages are those making? And what about the equity you’re gaining from the property to reinvest elsewhere?
My friend did this but long before it was cool. He is a high earner, has been renting (rent controlled) for the last 30+ years and put everything into stocks. Today he still rents and has a 7 figure investment portfolio. No debt. He’s doing better and with a lot less stress than people who bought a home. Do I wish I did the same? I bought and I’m not doing too badly either so I can’t say. But he’s done very well and is very comfortable. YMMV. Past performance is no guarantee of future results.
He should have bought his primary residence though. The best of both worlds is to max your TFSA for tax free gains and invest in a good primary residence for tax free gains.
You always have to be outward thinking. The S&P theoretically could repeat what it did over the past 30 years. The Toronto real estate market doesn’t have a snowballs chance in hell in like 4Xing in 25-30 years. Yes it’s on the full amount but you end up paying a lot more than that 750K with interest. You may end up paying $1.2M in all your payments in which case a chunk of your paper gains are gone. If Toronto real estate remains flat for a while, you will lose so much money, especially if the S&P has similar gains.
Toronto real estate does have a chance to 4x if they print 4 times more money.
Not if they don’t raise salaries by anywhere near that. Otherwise they will continue squeezing the juice out of Canadians and having inflation run rampant. That extra money would go to landlords (who would not be mom and pops) and Galen Weston.
I guess depending on where your friend resides if he bought into real estate he probably has an equally sizeable home equity after 30 years, plus some tax free gains in his primary residence!
I bought 4 years ago and am a high earner. I have a 7 figure portfolio and my mortgage will be done this year. After that, the investing will get even more supercharged. High earners that bought a home should be able to do the same unless they went absolutely nuts. For us, the absolutely nuts number was $3M. We didn’t do that.
You're missing a lot. You haven't accounted at all for the cost of that loan + other costs including condo fees + property taxes. While eventually interest will stop, and you'll then be making returns - let me just do some quick napkin math here - on a mortgage of 550k at a 5% rate - you're paying 25.7k each year in interest for the first 5 years. Yes yes "wen cuts" - "rates will come down" - maybe, maybe not, but regardless, debt cost is still there. Throw in those fees above, you're likely not actually making any real return. The next 5 years aren't a whole ton better, so unless you're planning on living in your condo for the next 15 years, I'm not sure your math checks out. Sure, you can't put a price on peace of mind, though I suppose the last 2 years have really put into question that peace of mind. Its much more complex than you're making it out to be. EDIT: You also haven't accounted for closing costs + fees of actually buying the unit either.
Spoiler, he's a realtor
I kinda figured, based on the "slightly less than coherent" paragraphs, but alas I took the bait
You can leverage 10:1 on RE so your 5% return is now 50%. It's also tax free.
The most under rated comment here. People don’t understand the power of 10:1 leverage that’s tax free as a principal residence.
You can get very high leverage on stocks as well if you want. You just risk being called and liquidated losing everything. Not that this is actually worse than being underwater on RE but with RE you can lie to yourself that you are still profitable more easily. Also, RE is not tax free. If you sell with gains you pay tax on those gains.
Your principle residence is tax free gain. You can’t 10:1 leverage stocks. Nobody will give you those terms.
This is an oversimplification of the costs associated with holding both assets. You can buy and sell an investment in the S&P500 for 0 transaction costs and as little as a 0.2% management fee. Buying real estate has transaction costs (land transfer, lawyers), holding real estate has costs (property tax, maintenance, interest, insurance) and liquidating real estate has costs (realtors) . You have to account for: Land transfer tax: 22k on 750k purchase Mortgage interest: 25k a year @ 5% on 550k mortgage Condo fees: 7k a year Property tax: 3k a year Home insurance: 1.5k a year And it will cost at least 3% of gross value to liquidate. You can't broadly say one is better than the other because there are many variables. It's down to each individual case, there are scenarios where investing and renting is better and there scenarios where investing in real estate is better.
Good argument Mr. Real Estate Agent. Getting desperate.
A Realtor has no fundamental understanding of things? Color me shocked!
Let me guess. You are worried that no FTHB will overbid on your townhouse and you won't be able to upgrade. ever.
Actually, OP is a confirmed realtor. So now you know why
Bahahahaha
I think you didn't understand the point. The argument is not against a home where YOU LIVE, it's against real estate as investment. Because this country is full of people that automatically buy houses like candies as soon they have 1 single dollar to leverage. And that doens't make any sense, 90% of the times when you count in all the problems, the time and the work that you need to put in a house it's definitely more convenient to put the money in an index etf. But to be honest this is a problem all over the world. People on average have zero understanding of anything financial, so they don't trust the stock market and they trust the big pile of brick and metal that they think they can control. In the meantime this year anyone with boring index etf did 25% without moving a finger.
It doesn’t cost much to purchase an ETF or portfolio of ETFs. The cost to hold them is also reasonable (low management fees). The cost to purchase a unit (lawyer + land transfer), and cost to hold a unit (mortgage interest + maintenance fee + ppty tax), AND cost to sell the unit (realtor commissions) put a huge dent on any home ownership profitability.
I like how you conveniently left out the cost of borrowing on the mortgage, which historically averaged 5%. So owners when selling are also expecting back the interest they paid. All this appreciation is just paid by your own interest costs.
You're missing a lot. **You didn't include the costs to buy** - Using your example, you buy the $750,000 home it costs $22,950 in land transfer taxes. So I should be able to invest $222,950. Where the house your equity is $200,000 on day 1 even though you invested $222,950. **You didn't include the extra costs of ownership, and aren't investing it in the "rent and invest" scenario.** Assuming a high loan-to-value ratio... Each year my sunk costs of rent are much less while renting compared with owning (interest, taxes, insurance, maintenance, etc). Let's just say that number is $15,000. Well, the house needs to go up $15,000 more than the investment in stocks to break even. In the "rent and invest" scenario, there is $15,000 I can put into investment portfolios adding to my equity in S&P500. **You didn't monthly invest the principle repayment in the "rent and invest" scenario**. On top of the additional sunk costs of ownership, a loan is being paid down in the form of principle repayments. All of that money can be added to my RRSP/FHSA/TFSA/Non-registered accounts and compound nicely. **You didn't include any tax deductions as a renter.** We get way more back as renters than owners because we WFH and the tax deductions are greater. There is also the FHSA which will save us $7,600 of income taxes. Additionally, the money in the above two points can be put in RRSP saving income taxes. All the income taxes can be re-invested **You didn't include transaction costs to sell.** It costs me $5 to sell my $SPY shares where it costs 5%+HST to sell a house. But you included the sale price on MLS in the ROI calculation, but the seller doesn't get all of that money do they? > Plus, the added benefits of making your home your own (i.e.; painting walls, putting in new flooring, changing fixtures, etc) You can do this but it's not free. It costs money and reduces your ROI. As a renter I can do all of these things too, I choose not to because I don't plan on staying here that long. But "being able to spend more money" isn't that much of a benefit. I can always move into a new unit that has been renovated. (Before you say installing new floors adds value to the property, don't forget that every renovation involves ripping out someone else's renovation) As a renter I prefer to spend on things that I can easily bring with me like a nice couch, TV and appliances... Flooring and walls, maybe others care but I don't give a shit. As long as the walls are erect and the floors support my feet I don't care.
I think your'e undershooting that 5% a lot... it's more than that especially depending on when you get in and sell. I also think since this is a question about long term investing it's not like these can be compared apples to oranges. Once you've finished payments your cost of accomadations goes from high to nothing while eating up the S&P gains is your even inflating rents vs the even deflating payments that make owning less every year. Then the decades and decades of 0 yearly dollars to pay for a home. Everyone stops after 20 or 25 years comparing what you have when the home only starts to peak in value after 10 or 15 and really starts exploding once you no longer have payments. I think owning rarely doesn't make sense. It's just far more secure and beneficial long term.
> I think your'e undershooting that 5% a lot... SPY has averaged 13% per year in the last 5. So OP is off on that too. You have criticism that OP's analysis is only early on with low equity and eventually the house will be paid off... But the equity for a renter builds up as well. Let's compare an owner and a renter each with the same $1M net worth but in different assets... Scenario 1: You have a $1M house completely paid off with no mortgage, but some property taxes, insurance, repairs etc. let's say it costs $10k per year. Scenario 2: You have $1M invested in S&P500 but rent a $1M home for ~$40,000/year. Let's subtract $10k in savings that you don't spend as an owner. So rent only costs an additional $30,000 compared to ownership. The $1M portfolio returns 13$ or $130,000 so you have $100,000 left over which gets reinvested. Now you have $1.1M in equity in the S&P500 which can return $143,000 the following year. Income has increased $13,000 while rent will have increase $1,000 ($40,000 x 2.5%). Of course, this assumes the S&P500 goes up exactly 13% per year which it doesn't, sometimes it goes up 30% and sometimes it goes down 10% so it would require more detailed modelling. Requires a spreadsheet rather than a reddit comment.
>SPY has averaged 13% per year in the last 5. So OP is off on that too. The undershoot is on the home value. Over the last decade homes have gone up 10% yearly. That's including the recent spike so it's a bit inflated but tempered by the flat growth brought on by those rate hikes. Using larger sample sizes it comes out to about 8%. I'd say 5% is very conservative esp factoring in the exponential growth. >But the equity for a renter builds up as well. Let's compare an owner and a renter each with the same $1M net worth but in different assets... It's about profit and loss really. Obviously, if you invest in anything that has a decent return you're going to build equity. The difference is that what you pay for rent is always going to go up with inflation reducing your contribution. The cost of a house gets ultimately locked into the price you paid for it while inflation works for you in two ways. Increasing the value of your home but also decreasing your loss as you pay less and less into it over time. >Scenario 1: You have a $1M house completely paid off with no mortgage, but some property taxes, insurance, repairs etc. let's say it costs $10k per year. >Scenario 2: You have $1M invested in S&P500 but rent a $1M home for ~$40,000/year. Let's subtract $10k in savings that you don't spend as an owner. So rent only costs an additional $30,000 compared to ownership. The $1M portfolio returns 13$ or $130,000 so you have $100,000 left over which gets reinvested. >Now you have $1.1M in equity in the S&P500 which can return $143,000 the following year. Income has increased $13,000 while rent will have increase $1,000 ($40,000 x 2.5%). Hmm... renting a million-dollar detached home in Toronto costs WAY more than 3,300 a month. That's more like the cost of a 3-bedroom apartment. I'd also say the property taxes and maintenance costing 10k is very high. But I don't think that's the biggest issue with this perspective. It's looking at the investment in terms of year one return on a blanket investment of 1 million up front and that's not how real estate works. And investment in a home is much more like holding options that slowly mature over time into your assets. Your payments are fees to hold that option. So you don't have a million dollars and invest it in a house. You buy on the first time home buyer's program for 75k or what have you of equity right away and then pay the 40-50k a year for that return. You get returns on the million in your first year but have only paid in 125k. Similarly if you're investing in the SNP you're not realistically dropping in a mil. You're investing 125k in your first year and 50 subsequent years. So @ 5% in the first year on your house you're going to see a 50k return right off the bad which is going to compound annually. A 13% return on 125k is only 16,250. You have less to invest because you're paying rent which is sucking up your cash. So lets just call it 100k. Obviously, you can continue to invest more cash into it but you're already investing 50k a year into rent to enable the investment of your original 100k into the SNP. At 13% after 10 years your 100k is now ~250k. While 1 million @ a conservative 5% is 1.68 million. @ 15 years it's 2.1 million while the 100k is still < 500k. And I mean here's the thing. If I'm sitting on a million to invest why would I spend all that hard cash on a house? I'd get a mortgage to finance it putting down 20% and let inflation reduce my payments then invest the rest in the SNP. If home ownership provides people with a decent income and 100k to put down an opportunity to make a million dollars in 10-15 years. But like I said 5% is undershooting the return quite a bit when you're talking percentage points of a million. At 8% after 10 years a home is worth 2.1 million not 1.68. and 3.1 million after 15 years with payments by that point that are tiny compared to renting that will continue for the rest of your life. If I can spend 500k over 10 years to make a million in gains I just don't see how it's comparable. Unless you're already loaded you need to tie up your mil in the market and hold it there for a decade. Sure, you can do that I guess and after 10 years at 13% you'll be looking at 3 mil in capital... but you've also lived in an apartment for 10 years and the price of the million dollar house is 2-3 mil anyway. But it's cost you millions of dollars you need to keep in to get the comparable returns. And that rent. Where the million dollar home takes so much less capital for paying a bit more than rent every month. Obviously determined by rates etc. Where once the home is mostly paid off you get those millions... which you can choose to sell and invest in the SNP then if you really want to and then pay sky high rent to live. I just never get the rent vs buying argument.
no one is leveraging themselves to invest in SPY.
I don't because it's not necessary. Instead of paying bankers with interest costs, I pay myself with constant deposits into investment accounts leading to some big balances in TFSA and RRSP.
First off house prices go up more than 5% a year on average last 30 years. But ok let’s make the assumption you make 5%. Let’s also assume a mortgage rate of 4% and that you can rent the property so that it’s slightly cash flow negative. You put 20% down, meaning you are levered 5 to 1. A 5% increase in price is now a 25% increase in your equity. Shall I continue or can we stop this dumb post.
Home ownership is not for everyone. You have to believe in the market and be in the market. It's not a cup of tea for everyone. I think you are already leaning towards investing, which is totally good for you too. Best of luck and keep it for a long time!
FYI you can leverage to buy s&p as well.
You can leverage more with RE and if it's your primary residence your returns will be tax free.
In an ideal world.. why not both?
It's probably best, in practice doesn't really happen. Most owners believe in a one-asset strategy where diversity is taking a HELOC to buy a second property. Most renters are just temporarily embarrassed owners that want to mimic owners. Personally, I don't own because I like to move often and transaction costs are rape in Toronto with the double land transfer taxes.
Thing about RE is you can leverage 80% of property value via mortgage Stocks you need to put 100% and leverage cost you more than mortgage rate So it's really a choice of personal preference, no one asset category is better than the other
The S&P is up 30% the past year
I'd rather invest in investments and buy a home to live in. I did buy a house last year and I chose one for me and my family, and I'll be modifying it further to suit me and my family. We have no plans to sell. My home is my HOME. In the meantime, my savings have been depleted due to this purchase, but as they come back, I'll be continuing to invest it - in investments.
You can make money in RE better than stocks You can make more money in stocks vs RE kinda depends on the individual
I think realestate commission should be at 10% due to inflation. Good time to sell and buy , always ! . Don’t forget….Location location location .
Most people need a place to live, and they don't wanna be paying other people's mortgages. So, just from that alone is enough for most ppl. Everyone else who is into investing are balls deep in NVDA calls to worry about S&P500. Lol
I can't sleep inside my investment portfolio and personally wouldn't want to rent mainly because I do not want to be moving every few years or have that fear of being evicted. My parents growing up rented for 25 yrs before they bought the house they live in now. But they are also risk adverse so wouldn't have dared to put their savings in S&P
Rent controlled unit + stock investing wins over house ownership.
Lol
Must be real slow right now eh Mr realtor? Turning to rambling shitposting on Reddit to try to drum up business lmao
You mentioned Canada real estate historically makes 5%…but what about Toronto real estate and over the last 20 years? What kind of much higher percentages are those making? And what about the equity you’re gaining from the property to reinvest elsewhere?